How Big Should My Down Payment on a Car Be?

Reader Jimmie wrote in with a good question about the ideal down payment on a car:

I’m going to buy a new car in several months and I’m trying to figure out how much down payment I should have. I’ve heard tons of different answers from different people. What’s your take?

My initial take was to give this an off-the-cuff response – “bigger is better when it comes to down payments” – but then I realized I’d be falling into the same trap of all of the others that gave Jimmie advice. It’s all about the assumptions.

So while it’s an excellent question, there is no one-size-fits-all answer. Each situation is unique, and your ideal down payment on a car might be completely different than someone else’s.

Still, there are several steps you can take to figure out what kind of down payment would be appropriate for your situation. Here’s what I would do if I were trying to figure out how big my down payment on a car should be:

Step 1: Get Your Credit Report

The absolute first step you should take when considering a loan is to get your credit report. You can get your credit report for free from the federal government – no strings attached – at AnnualCreditReport.com. I recommend avoiding freecreditreport.com because it requires “enrollment in Triple Advantage,” a credit-monitoring service you probably don’t need.

With AnnualCreditReport.com, you can request a free credit report from all three credit reporting agencies each year. If you’ve never checked your report before, it’s worth getting all three.

Once you have all three copies of your credit report, take special care to go through them line by line to ensure accuracy. Your credit report will list all of the debts you owe, as well as credit lines currently available to you.

No matter what you do, try not to hurry this process. Go through your report carefully and make sure that every item listed is accurate. If you find any information that is inaccurate, it’s crucial that you report it to the responsible credit reporting agency right away. They can help you dispute and remove any misinformation you find on your credit report, which will improve your credit score over time. Get these issues straightened out before you move on.

Whenever you take out a loan, sign up for a credit card, or take out an insurance policy, the company you’re dealing with takes a peek at this report – or your actual credit score. Your credit score is basically just a number that summarizes all of the information in your report. Most credit scores fall between 300 and 850 – the higher the score, the better.

Why is this so important? When your credit score is relatively high, you’re much more likely to qualify for the best car loan rates. Likewise, the lower your score and the messier your report, the fewer loan options you will have. Getting a copy of your credit report is the first step toward determining your credit health and ensuring the best loan terms possible.

Step 2: Decide What Type of Car You’re Buying

To figure out how big your down payment needs ought to be, you need to decide what type of car you really want to buy. Here are a few questions to ask yourself as you begin this next phase of the process.

Are you buying used or new? Buying a new car comes with its own set of benefits. First of all, you’ll typically be covered by some type of warranty, which can lead to huge savings if your car breaks down or requires extensive repairs in the first few years.

Meanwhile, buying a new vehicle extends the length of time you’re able to own your car. If you pay off your car loan in three years, you’ll have a good seven to 10 years of payment-free car ownership ahead of you, and probably even a few years left on your warranty, too.

The problem is, buying new usually means losing at least 20% of your car’s value the second you drive it off the lot. For many people, the rapid depreciation that comes with new cars is unacceptable.

But here’s the thing. Whether it’s because they need to hit monthly sales goals or some other motivation, dealerships usually offer the best incentives when you’re buying a brand new car. In some cases, you may even be able to get a 0% APR for the duration of your loan.

When that’s the case, your down payment may become a moot point. Likewise, you may want to consider a larger down payment if you plan to buy a used car and know you’ll end up paying interest on your loan.

What model are you buying? When you’re shopping for a new or used car, it’s always helpful to have some sort of idea of what you’re looking for ahead of time. You might find the sheer number of available cars overwhelming at first, so it helps to have things narrowed down.

Are you looking for a family sedan? A fuel-efficient hybrid? An all-wheel-drive SUV or pick-up truck? If you can narrow down your search to one or two models, or even a basic vehicle type, you can conduct the kind of in-depth research it takes to get the best deal possible.

How do I “do the research”? The Internet is a treasure trove of data when it comes to comparing different vehicle types, including their features, reliability, and price points. And that’s part of the reason it helps to know what model you’re interested in before you really dig into the details.

Research and compare specific models or entire vehicle categories on Edmunds.com, or check out back issues of Consumer Reports (you can often find them at your local library) for thorough car reviews.

Once you narrow your search down to a few different models, figure out the average cost for each vehicle. Use Edmunds or Kelley’s Blue Book to look up the value of the model and year you’re looking at so you have a good idea of what you’re saving for. As a rule of thumb, the more you plan to spend, the more you’ll want to save up ahead of time.

Step 3: Figure Out How Much Down Payment You Need

Now that you have all of this information, you’re ready to figure out how big the down payment for your car should be. Follow this decision tree:

Is your credit bad?

If your credit isn’t all that great, your car loan will probably come with terms that are less than ideal. Therefore, you’ll want to grow your down payment as big as possible before you buy. If your credit score is good, however, keep going.

Are you buying new?

If you’re buying new, you’ll probably want to put down at least 20%. That way, you won’t start off our new loan “underwater.” Even if you’re able to qualify for a loan with low APR, it still isn’t wise to owe more on your car than it is worth.

What would happen if you lost your job and could no longer afford the payments? If your loan was underwater, you wouldn’t even be able to sell your car and break even. Or what if you totaled the car and your auto insurance only paid you for the car’s fair market value, not what you still owed on it? If you didn’t pay for an insurance add-on for that situation, you’d be left owing money on a hunk of scrap metal.

With an older car, you’ll still experience some depreciation, although on a much smaller scale. However, I would still try to save up at least 10% in order to start off the new loan with some equity.

And don’t forget: The bigger your down payment, the smaller the loan you might end up with. Your monthly payment will reflect how much you actually borrowed, for better or worse. Once you figure out whether you’re buying new or used, move on to the next step.

What’s the actual best loan offer you can get?

Before you head to the dealership, stop by your local bank or credit union and check online companies to see if their car loan terms are more attractive than what you might find elsewhere. You have nothing to lose by checking, and you might get lucky and discover that your bank offers excellent terms.

After you check online and with your bank or credit union, head to the dealership you plan to use to see what they can come up with. In today’s low-interest-rate environment, you should expect to pay less than 7% APR on your car loan. If the dealership and your bank can’t offer a lower rate lower than 7% APR, you should just keep saving.

Regardless, this is where having a large down payment for your car comes in handy. The more cash you have on hand, the more leverage you might have in your negotiations with the dealership. When you have 20%, 30%, or 40% saved up, you might be able to negotiate a lower sales price or better terms for your loan.

Also, remember that what you have saved for a down payment isn’t necessarily what you have to put down. If you have 40% saved up and can get an astoundingly low interest rate by only paying 20%, you don’t have to cough up that extra 20% – keep it for your emergency fund or save it for the next car you need to buy.

Here’s what you should do, summed up in one paragraph: Have at least a 20% down payment — unless you’re buying an old car, then 10% is the bare minimum. If you find that the interest rate is over 7%, save for a bigger down payment and wait until you absolutely need the car.

While I personally believe in avoiding debt and paying cash for everything, I also know that my philosophy doesn’t always translate into reality. So I offer this one little piece of advice: start saving now.

Open an online savings account and set it up so you are contributing to it on a regular basis, whether it’s once per month or on payday. The keep saving until you need a new car. Lo and behold, your down payment will be sitting there waiting for you – and the bigger, the better.

You should have a 100% down payment. No loan at all. It’ll save you the most money since you have no interest tacked on – and while saving up for it, you actually make a little from the bank paying you on your increasing savings balance!

In addition to stopping by your local credit union I also suggest that you check out some trustworthy online car loan sites. In particular, HSBC and Capital One will tell you what your rate will be, and send you a ‘blank check’ in the mail that will start your loan at the dealer. Then you can walk into the dealer knowing rates at 3 different places, and if the dealer isn’t offering a better rate you can just write a check then and there.

I’m in agreeance with Sean.
I pay cash for my vehicles and detest car payments. Frankly, I hate making payments on anything that depreciates in value.
My wife and I both drive 2003 Hondas that we paid for with cash. We bought the 2003 Civic in 2005 and 2003 CRV in 2007.
They may not be the flashiest cars on the block, but they are economical and reliable. Best of all, they are ours!
Just my $0.02.
-Tyler

My first instinct was to say your car payment should be zero, but then I realized that isn’t always possible. Accidents happen when your account isn’t ready to buy a car, etc.

Car loans should be no more than 3 years – if you have to go more than 3 years to get the monthly payment low enough then that car is too expensive for you (unless you have one of those sweetheart 3% loans or something cheaper than the savings account rate.)

I wouldn’t want my car payment to be more than 10% of what I earn. If your home is 30% of your take home income and your car is 10% then that’s a whopping 40%! Hard to get out of debt like that.

That being said there are times (and they are rare these days) when you should get as long a term as possible. My mother wrecked her car in 98 and went and got a new Buick for 0.9% financing for 3 years. Needless to say she put as little down as possible and stretched the payments out as long as she could. I have another friend who bought an Accord in 2003 with 3% financing – she’s taking her sweet time paying it off, too. Both have/had the cash to buy the car outright, but the financing was just too good. My only question is did they pay too much for the actual car price initially cause they did finance? I always feel I get a better deal with checkbook in hand. Trent, maybe that is a good follow-up to this discussion – do you get a better overall price when paying with cash or financing?

I went and bought a new Civiv Hybrid last year and put zero down. The reason behind this was that they had a promotional offer of 1.9% financing and I have an ING account that offers approx 3.5% interest. I took everything that I was going to put down on the car and put it in a new ING account. Now I am ‘earning’ 1.6% on my money before I pay it to them. Thoughts?

I am firmly in the all cash camp. Don’t buy new, but buy used with cash. Be fine with a 96 Nissan Sentra that costs a couple of thousand dollars and will get you around for a few years, and then start saving for the next purchase.

Tom: You have to pay taxes on the interest earned in your ING account. Are you sure you’re really getting ahead with such small numbers? And is that 1.9% rate fixed? Or will it change? What happens if you lose your job for awhile? Do you have a large savings for that possibility? If you pay cash – you own it. No one can come take it away right when you are most in need of it.

If you are buying a new car (they have info on used too), i suggest going to http://www.edmonds.com and getting the invoice price of the car you want. Thats about the max you should pay. Negotiate and wait to get that price or lower.

I know you don’t advise leasing cars, but how would your answer change for a lease? I plan to lease my next car, and I instinctively want to make a big down payment to keep the monthly payment lower, but I’ve heard that doesn’t necessarily make sense for a lease.

I bought a new car in 99 for $12000 before I knew how financially stupid it is to pay interest on a depreciating asset. In 2003 it was totaled and I got $5000 from the insurance company. I loved that car but I would never buy new again. Next car I bought was a 91 nissan for $1750. It got me from A to B and had air conditioning, I never cared if it got dinged and I loved not having a car payment. My goal is to never pay more than 3-4 thousand for a car again (adjusting for inflation of course).

Only time I think buying new is okay is if you live on your own and have no family close by. It’s good to know the car will start up every day and to have the warranty.

If you insist on buying new see if your insurance offers coverage for the gap between your purchase price and the insurance adjusters’ appraisal of the car. I speak from experience, my BIL bought a new truck and it got totaled a few months later. He would have been screwed if he didn’t have the gap coverage.

I second Johanna’s comment about not having a car at all. You’ll save the most money this way.

If you live in a city with public transit, then this is not at all difficult to do. I’ve never owned a car. Biking and public transit are my transportation methods of choice — less pollution, less cost.

Actually Ken, invoice is HIGHER than you should ever pay. I generally dont leave links in comments but whatever you do, don’t pay invoice for a new car…download the calculator (free) on this page:http://thepennysaved.com/download/

You will pay hundreds less than invoice…Ive bought two new cars and neither time did I pay close to invoice. The thing is that invoice price isnt really what the dealer pays for the car. Infact, half of what they say you “have” to pay is simply untrue. The only “legit” charge is the destination fee.

Don’t buy a brand new car. It is an absolutely stupid waste of money. The typical new car loses 60% of tits value in the first 4 years. The average price tag on a new car is $28,000, so that means the car is worth $11,200 in four years.

If you want a better idea of how this works, imagine rolling down the window on your drive to work once a week and drop a $100 bill.

Per The Millionaire Next Door, the average millionaire studied buys a 2-3 year old used car, letting someone else take the largest hit on depreciation. Oh, and they pay cash for their car. I imagine if one is asking how much to save for a down payment, they can’t pay cash for a car, but they do have discipline enough to save up and buy a decent used car.

There’s a LOT of great used cars in the 5-10,000 range. In particular, many luxury car models from 1999-2001 can be had for around 10,000.

So my advice: Save up $10,000 and go pay cash for a used car. Buy it from a private party, because you’ll get a better deal than from a dealer *every time*.

I would advise to pay cash if possible. If not, put as much down as you can (assuming you have a healthy e-fund). Pay off the loan as soon as possible then start saving for your next car.

We did this last March. We bought a two year old and put ~60% down. We threw all extra money to the car loan and paid it off in a little under 12 months. We plan to keep it for at least 7 years so by the time we buy again, we should be able to pay in full with cash.

I used to sell cars for a living and I wrestled with this very question from both a personal and insider vantage point.

I think 20% down is best. It gives you a position of power to negotiate the rate you will pay on the loan. One thing that wasn’t covered here is that car dealerships frequently are incentivized by lending institutions with what is called a “buy rate”. Meaning a bank will sell the loan at 5% and allow the dealer to write the loan at whatever rate they can get above that. The dealer puts it through at 7% and gets to keep 2%.

Trust me: You put down 20% and you are going to get “bought” (approved) on the loan no matter what your credit is like, just about. It’s like a “no-doc” loan on a house.

I would never advise anyone to put 100% down on a depreciating asset. Beyond not having a payment and paying interest there just isn’t any upside. The interest you might otherwise earn on that $20,000 or $30,000 or more in cash and the liquidity of having it in hand far outweighs any benefit for “paying cash” for a car.

I also agree with 10% not being enough. Being “upside down” in a loan can be very problematic and in general 10% isn’t quite enough to afford you protection.

I think this is a question best answered by striking the right balance and between 100% and 10%. I have come to believe the right balance is 20%.

Car salesman are trained to key in on what they call the “buyers triangle”. The three angles are “price” “payment” and “trade”. Most buyers focus on one more than they others. Buyers come to the dealership essentially to get what they want and too often will not be as careful as they ought to be on all the facets buying a car. It is difficult, emotional, and something most people want to avoid: Haggling.

20% down gives you great negotiating strength though. Be confident that you can haggle with strength on all three angles of the buyers triangle. Price(know the costs), payment(know rates and insist on the lowest, don’t buy the crap about credit scores), and trade(know the higher values for a trade like yours).

<<>>

I promise you will be surprised with what you can do with 20%, and haggling from strength.

You should also ask if you’re a horrible driver. I’m a terrible one (partially because I only drive maybe once a month, but I was only slightly better when I was driving every day). If you think there’s a good chance you’re going to total the car soon, you should pay as much as much as possible up front.

And why not pay cash for a used car and not waste your money on interest? We could have gone out and financed a really fancy new car and piled on more debt, but instead we paid $3,500 for a nice used Infiniti that runs great. In the mean time, I am saving cash for another car to replace that one some day.

I think it is a much better idea to get out of the car payment mentality and buy what you can afford.

Normas: “I would never advise anyone to put 100% down on a depreciating asset.”

Are you serious? That’s insane! That kind of thinking only benefits the dealers and the banks that make the loans! Food depreciates even more quickly than cars – would you advise charging 80% of that, too? Only pay 20% on the grocery bill each month and see how long you last before the collectors start knocking on your door… and in that case, there’s nothing left to repo!

If you remove the need to haggle over payments by having 100% of the cash, then the consumer has an advantage on the salesman’s “buyers triangle” tactics because now suddenly the one thing most people are most concerned about and the salesman is trained to push the hardest is simply gone from the equation. This gives the buyer more power over the deal – and that’s always a good thing (from the buyer’s point of view).

My wife and I both have full time jobs, but we get by with just one car. Obviously not a workable solution for everyone (and kids probably make that even more difficult), but even though it can be tedious at times, it’s worth it to us in the long run. Besides, our house is small and we only have a single car garage. Why have two cars when one would need to live on the street all alone? :)

I have a follow-up question: I got a terrible rate on a car loan 18 months ago, which I took simply to start rebuilding my credit. My credit is better (enough that I bought a house, though not great yet), and I’m sick to my stomach at paying 14% for a gas-guzzling truck that I don’t particularly like.

Since I’m upside down, am I better off paying it off (oh, the pain of all that interest and gas) or trading it in? I’m not sure where to begin the financial analysis.

I agree that a new car is a bad choice, since it loses its value so quickly.

We have one car (my husband takes public transportation) that we paid off in four years. But we didn’t stop making “payments.” We put that amount in a high yield savings account each month. It doubles as an emergency fund and as a down payment fund. We hope that the next car we buy will be done with 100% down.

I absolutely agree with everyone here that says 100% down on a used car. Depreciation and inflation does not sit well with new cars. Also, I wouldn’t suggest putting a loan down on a depreciation asset, especially like a car. At best 50% should be a bare minimum.

Everyone is head on to start setting up a savings account and I follow the advice of Dave Ramsey of paying yourself a car note (car payment). Next thing you know, you’ll have cash that gained interest and ready to purchase your new (used) vehicle, and guess what! You didn’t incur any debt.

“I would never advise anyone to put 100% down on a depreciating asset.”
This seems silly to me as well. Most of the things we buy to use – furniture, clothes, electronics (most of all), cars are depreciating assets. Would you advise financing it too?

“The interest you might otherwise earn on that $20,000 or $30,000 or more in cash and the liquidity of having it in hand far outweighs any benefit for “paying cash” for a car.”

This would depend on the interest rate, wouldn’t it? Also keep in mind that bank interest is taxable. While I paid cash for the last three new cars I bought, I’d have considered financing if the rate had been below tax-adjusted interest on a high yield savings or a CD. Then I’d have simply put money in a bank, continued paying premiums and would’ve been ready to pay the full balance as soon as bank interest rate dropped. It wasn’t, so I paid cash.

So my advice would be – calculate the total cost over the loan period and the value you’ll get from your money in a bank. Then choose the option that makes sense financially, but save enough money in high yield savings in case bank interest drops significantly compared to loan interest. Since we are talking short-term, I would compare regular bank interest to loan interest not stock market gains.

“The typical new car loses 60% of tits value in the first 4 years.”
Depends on the car. If I remember my numbers correctly: I paid about 15,000 out-the-door for a new Toyota Corolla in 2003; totalled it in 2006 and got over 13K from the insurance company. Hardly 60% loss, don’t you think? Only needed to add about 5K to get a new Honda Civic. Old cars can be great if you are lucky, but you can also buy somebody else’s problems. I had an old car when I just started working after grad school. It cost me more in 4 years I had it than premiums on a new car would’ve been.

“Sell your car and move to the city! :)”
Depends on which city you live close to. If I were to move to Manhattan and got a job there instead of lower Westchester, I’d certainly sell the car, but I doubt my expenses would be any smaller :-) Seriously, there are only very few cities in the US where one could go without a car, and only if one works in the city itself. Most of us need our cars to get to/from work.

Well, we are in a yucky spot right now… dh’s car just broke down (head gasket.) He’s 32, this is the Ford Escort his parents gave him when he turned 16 yo! B/c we are unsure about what car we should get for me (we want a vehicle with more seating before adding baby #3 in a few years) we went ahead & decided to pay $3k to fix it.

Question for the buy with cash folks… we want a vehicle for me to drive that could accomodate 3 carseats and 3-4 adults, so I’m thinking mini-van. So what kind of mini-van would you be looking for if you could spend $8-10k cash? (I know we could get a lower mileage Chrysler, Dodge or Ford mini-van, but the reliability concerns me… or a high-mileage Honda or Toyota… I just don’t know which is better…)

One thing to consider in this is year-end incentives. Right now is a good time to start shopping for a new 2008, when they’re trying to get them off of the lot (for summer arrivals of 2009 models). You’ll find great interest rates, some as low as 1.9% or 0! Compare the interest on a new car at 1.9 to a used car at 7. For the same 17000 car, 1.9% @ 60mo will give you a 297/mo expense and $833 in interest after all is said and done. That same car at 7% @ 60mo will be a $337/mo and $3,197 after all is said and done. That is roughly 2300 in difference of your bottom line!

I live in the heart of a city (Memphis) and I only wish I could do with out my car. One week I had to have some body work done. I noticed the bus was 2 streets from my house and would drop me off in front of my job w/o a transfer – I thought that would be great. Between the bus never being on time (one day it didn’t come for over an hour), being full of bums and “interesting” people, and getting propositioned a few times while waiting on the bus I decided I’d never, ever do without a car in the city. I use public transportation when I visit Chicago, NY, and San Fran, but all other cities I rent a car.

Also to comment on the never paying 100% down on something that depriciates that quickly, I’ve always hear “Never pay interest on something that depreciates.” In other words the only loan you should ever take out is on real estate.

I struggled with a similar problem until May 2007, when I bought my current car, new.

I was driving a 2000 car that I bought in 2004, when I was fresh out of college with miserable credit and (apparently) poor car-researching skills. The car I bought was in sad shape by 2007, and I was paying an outrageous amount of interest on the loan with three years to go, plus facing increasingly expensive repairs as the car fell apart right before my eyes. With three years left to pay if off!

The best part? Thanks to the outrageous interest, I was about $1,000 upside-down.

Here’s what I did: I saved up the $1,000, plus another $5,000 for a down payment on another car.

I did a lot of research. Turns out my company (a large consulting firm) has special deals with several carmakers for discounted pricing on new vehicles. I researched cars I wanted at several carmakers, the ones I had discounts at and some others too, for comparison. I test-drove about 6 different ones. I researched them on Consumer Reports for longterm reliability. I ranked them by preference, taking into account things like what I estimated the price to be (based on the carmaker’s MSRPs, Edmunds, etc.).

Then, I heard about one of my discount carmakers offering 0.7% interest loans. It just happened that two of the six cars on my list were at that carmaker, and one of them was #2 on the list (only not #1 because of price).

I ended up selecting #2 because my discount got me the car siginificantly below invoice (~15%). I saved about $5,000 there. Just to be safe, before I’d gone to the dealer, I’d pre-qualified for a loan from a bank (i.e. not the through the dealer) at a very decent rate and had a “blank check” with me. However, I did qualify (with 20% down) to get the 0.7% financing for 3 years, saving me about $3,500 in interest compared to my other loan.

So to sum up: I spent $6,000 out-of-pocket on my new car. I saved myself $5,000 on the car itself and $3,500 by getting financing that was almost free. Over the next three years, instead of spending a car payment each month on a car that is and will continue to fall apart, I will be spending slightly more (~$150) per month for a car that will be a three-year-old used car in excellent shape when its paid off.

Now, I don’t have a loan that is upside down, since I paid significantly less than most people do for the same car, and since I paid 20% of the vehicle off on the day I bought it.

I think as far as buying a new car goes, that’s about the best deal I could come up with. I’m not sure if any of that will help you, but I was (and am) pretty pleased with the result I got.

“I paid about 15,000 out-the-door for a new Toyota Corolla in 2003; totalled it in 2006 and got over 13K from the insurance company. Hardly 60% loss, don’t you think?”

Not to argue (the 60% figure varies widely car-to-car) but I’ve totalled a car, and my insurance paid me what it would cost to go out and replace the exact same vehicle at market price, not trade-in price. So the 60% figure is probably trade-in value/original price, and that $13k was not trade-in value.

I think that when buying a used car, you also need to contemplate gas mileage- or rather the improvements that have been made in the last few years. Someone said they will never buy a car that isn’t 10 years or older. It’s 2008, meaning you have to buy a 1998 or older- not that great on gas mileage. I bought a 2003 Toyota Matrix last year which gets double what my husband’s 1999 truck gets, and I get 10 miles per gallon better than my mother-in-law’s 2000 Toyota RAV4. The savings in gas is more than enough to make up for the higher price of a 2003 vs a 2000 or older. And we plan to own it until it dies (or we are forced out of it by children), so it was a good “investment” for us.
As for specifics- I bought the car for 11,000, paid $2000 down (almost 20%) and my payment is under $200 a month. Yes, I could have saved that $200 a month for several years to be able to buy a car outright, but we were living with just the truck, my husband working at 4am, me dropping him off, him wasting hours on the bus to come home and go to school, then me picking him up at the train stop. It just wasn’t worth it anymore. We were filling the darn truck every 6 days (at 18 gallons each time). We would easily be spending the $200 a month in gas with prices the way they are now. Just remember to consider all the options.

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I don’t have a car at all. If I were going to purchase a car (for example, if I were going to be moving somewhere without adequate public transit) I would buy a user car with cash. I don’t want to be in debt for a depreciating asset.

It is possible that trading in your old vehicle could be the equivalent of putting down 20%. Of course putting a little cash down doesn’t hurt. I think buying a cheap used car with cash isn’t a bad idea but I don’t like the idea of putting down 100% on a new model unless you are wealthy of course. Once you put all that money down its gone. If you undergo financial hardship, you will have problems.

Have you tried comparing vehicles’ true cost to own at Edmunds.com? The site will give you estimates of how much it will cost to own any vehicle, broken down into categories such as depreciation, insurance, fuel costs, maintenance, and repair. It only goes back to the 2003 model year, but if you’re looking for an older version of the same model, I would think the numbers would hold fairly steady.

If you get the same rate no matter your down payment I suggest financing 100% and your sales tax (if you are in a State that taxes car purchases). If your car gets totaled you are going to loose that 20% because insurance will most likely only pay remaining of your loan.

Age of a vehicle does not necessarily determine gas mileage. I think vehicle manufacturer (Toyota vs Ford) and class (compact vs SUV/truck) make more of an impact on mileage than age. My 1993 Toyota Corolla still regularly gets 32 MPG, not too shabby for a 15 year old car.

I love this topic and also have struggled with it. I paid as much as I could comfortably afford, which was $9000 on a $26,000 car, which made my monthly payments around $400. For me, I felt better about paying more upfront and then lowering those monthly costs, in case there were unexpected financial stresses down the road.

My sister and I both have 0% loans on new vehicles. I also got a $1500 rebate incentive, her brother in law works at GM, she got the employee discount. Yes, we live in Michigan. 4 wheel drive because we live where we get 120 inches of snow a year. We also pull trailers, so we don’t get great gas mileage, however we all live within 2 miles of our workplaces. Our vehicles suit our needs perfectly and we are quite happy. I passed my 12 year old van down to my son who had returned to grad school. She traded her equally elderly little car for about $1000 mainly because she would have had to pay at least that much to keep it running.

Comment #35 I can’t believe that you would pay 3K to fix a car that is essentially worth nothing. A 16 year old escort has reached the end of its useful life.

Biggest reason for me is that it controls the total cost. A new Honda Accord runs maybe $25-30k, but I can get one 5-6 years old for under $10k… and it will run perfect for another 100k miles.

People tend to focus on monthly payments or getting a “good” interest rate when buying new. Buying used with cash you focus on the total cost, which is hard to avoid due to the immediate pain of forking over thousands of your hard-earned dollars.

Some people will just always buy new – my husband is in that category. Fortunately his appetite for cars isn’t big and he drives the new car 12 years or more. Last year his 98 Honda Civic was totalled. I told him all we had for a car was $23k – he could get whatever he wanted. If it were me I’d have gotten a nice used Lexus or Acura (or at the least a top o the line used Accord) and still had money left over. He goes and gets a new Camry and spends every bit of the $23k. It’s fine, we can afford it, but still… a fool and his money are soon parted. At least he didn’t take the $23k and put it all down towards a $50k new vehicle.

While i concur that i would love to have paid for my car in full, i HAD to have a car that was reliable and in good condition to take me through college and beyond because of unforeseen circumstances…and while i am stuck paying 8.9 percent interest i think this one bite of the bullet is going to help me oodles when i graduate. Im paying for the car myself and going to school so im hoping it does wonders for my credit score :-D

I bought a brand new 1992 Honda Accord off the showroom floor for $14,500. I financed it etc. I can’t even remember what the interest rates were back then. It was a 5 year loan so I’ve had no payments for 11 years on that car. I do still drive it daily so I guess I got my money’s worth. My neighbor’s son bought a 1992 Accord in 2005 (with more options than mine) and paid $2,500. At that time mine had 101,000 miles and his had 229,000. I’m not sure what to make of all this but it was interesting. I guess from a financial stand point, he made out better? I paid extra to enjoy the same car for 16 years. I took a hit on the depriciation, that’s for sure. He paid less, drove his for a year and it was totalled in an accident. Well, whatever the numbers mean, a Honda sure does last! We did put 20% down on our Honda Odyssey and bought it new. I have learned since then that it doesn’t make sense to buy new. The Odyssey will be our last new car. 6 more payments and we’ll start saving to replace it in about 5 years or so with something slightly used.

Well let me give my perspective….and that is being from the inside…my family has had an Automobile Dealers License for 50 years and owned both new and used dealerships.

1/ Ignore the down payment amount you have…if you can’t pay off the total cost of the vehicle in 36 months its too much vehicle.

2/ Manufacturing technology has gotten MUCH better in the last 20 years. It used to be that a car usually died at around 100-120,000 miles…now making 200 is routine PROVIDED you do your required maintenance.

3/ Most vehicles have their mechanical problems during the first 12,000 miles or after 120,000…the miles inbetween are usually trouble free AGAIN PROVIDED YOU DO THE REQUIRED MAINTENANCE!!!!! Thats why the Owners Manual in the vehicle has a section on that…READ IT!!!!!

4/ If you absolutely need to feel like you’re getting a new car buy a used one and as you drive out of the dealership throw $5,000 in Twenties out the drivers window to replicate the instant depreciation you’d have if it were actually brand new.

Trent, the reality is that people need to stop buying new cars every 2 to 3 years. If they want to buy a car, they should consider the following tips:
(1) By toward the end of the month. Most dealers have quotas and they close out their stats at the end of the month so more flexibility at that point.
(2) Buy in October, November for that years model because all dealers will want to reduce their inventory to get more of next years models. At this time of the year, you may get 0% financing on many models or a instant rebate.
(3) Consider buying from the fleet manager. In most occasions, anyone can buy from the fleet manager. The tell you the price up front with no haggle negotiations. The price is often only $500.00 above invoice if you buy toward the end of the year.
(4) Most importantly, consider buying with no payments. That means saving as if you are making payments then buy it all upfront with no financing.
(5) When you have a car, drive until the car goes to 200,000 miles or more.

I bought a new accord recently, and I shopped around for used cars and I really didn’t see that much value in the 1-4 year old used car market. The 20-25% off is what you can sell it for, not what you can buy it for, especially for the better brands. Buying a reliable and economic car and owning it for a long time is not a bad strategy.
FYI I put 50% down and paid off My Accord in about 9 months.

@Jeremy, I liked the Ramsey link, and I like Dave a lot in general, but the 12% return on a mutual fund is very misleading and looking at that long term is very wishful thinking.

ELIZABETH!!!
I’ve been driving for 28 years and I’ve lost count of the number of cars I’ve owned. Most of them have been domestic beaters that I could easily work on and source parts for (the early one’s anyway). In the past 10 years I’ve owned a number of Toyotas (a 1987 LE van that I drove for 4 years without even looking at the engine,( not even an oil or filter change) and it had 275000 kilometers on it when I bought it – it just wouldn’t die! Three pre- 1990 Tercels all with 200K+ km’s on them and didn’t burn a drop of oil and started every morning. My wife and I drove one of them 8000km around British Columbia and the Yukon loaded with camping gear on remote logging roads and wilderness areas and not once did I feel the car would let me down. Last year we bought a ’97 Acura EL for $7k with 170K km and it runs like it is brand new. The great thing about these vehicles is that they won’t nickel and dime you to death. Even after 15 to 18 years on these cars all the bits and bobs still work – lights, horn , signals, everything.
My most recent purchase (somewhat against my better judgement!) was a 2000 Chevy Venture minivan with 150k km from friends that took great care and pride with it . I don’t have enough space here tell you all the little problems I’ve had with it and that doesn’t include the the $5-6000 my friends had already spent on it . I only bought it because it was really cheap!
To make a long comment even longer , do not buy a domestic vehicle – do your research thoroughly.
Edmunds is a good place to start. Look at you local
library or book store for the Lemon-Aid Guide written by Phil Edmunston – it is an excellent source on new and used vehicles. Check out his website http://www.lemonaidcars.com/ I would not buy a vehicle without reading this!

Gotta agree with the 100% down sentiment. Also, I would suggest having as little money as possible tied up in a car – that generally means buying used and holding onto the car as long as possible. I did buy my current car new – but I was 23 and that was 21 years ago and I’m still driving that car (a Honda). I expect to get another 3 or 4 years out of it. Now I’m holding out for a decent electric car (not a hybrid) and I expect I’ll have to wait a few years.

Ask yourself why you’re buying a new car. What’s wrong with the current one?

100% down is what I think should be done. If you have $4000 for a down payment then you have $4000 for a decent car that will get you around till you do not have anymore payments. Then you can save your money and buy cars(and things) you can actually afford. I really do believe a loan is a big sign that says “YOU CAN NOT AFFORD THIS!”

Sean @ 10:51 am April 8th, 2008 (comment #26)
“That kind of thinking only benefits the dealers and the banks that make the loans!”

No this kind of thinking benefits you too. By having liquid assets and earning offsetting interest. It isn’t cut and dry, simple as you suggest.

I also advise 5 year financing as a purely defensive measure. Yes you pay more interest on a 5 year loan, but the payment allows for greater cash flow. You can and should pay the loan off aggressively, this will save you interest. Given the recent economic conditions, the uncertainty, I believe it is a good thing to be able to fall back on a low payment. It’s insurance.

I paid an extra 15% on the monthly payment, fell back on the lower payment during a 4 month period of unemployment, then ramped up again +15% after I got a new job. The car was paid off in just over 3 years. I’ve had it for 7 years now payment free.

I also managed to save a lot cash monthly and earn a lot of interest on what I contributed to the mutual find.

Yes, you are technically correct. I’ve always used 10% as a guide. Based on long term averages for home mortgage rates and return on the S&P 500: Both are historically around 10% for the 20 to 30 year timeframe.

Borrow if you pay interest of less than 10%, save if you can earn more than 10%. Not a hard fast rule, just a guideline.

Several people have suggested buying a car for the long haul. It may be obvious to everyone, but when I was selling cars I did a little research to find the truth in a line they used to tell us to say to customers: it goes like this “that old car of yours is out of warranty your going to start getting expensive repair bills” or leading the customer to believe that a new car would somehow be cheaper.

I thought this statement was flawed and when I looked into it, reading Consumer Reports articles, talking with mechanics, and parts guys, I could not validate the statement. In my opinion buying a new car every 2 or 3 years is purely vanity. Buying a Honda or Toyota, and driving it forever, repairing it no matter what, is going to be the low cost choice every time. Other cars would work too, my study of Honda and Toyota says either is the best overall low cost solution.

Even if your engine needs replaced, its only a few thousand dollars. A new car is tens of thousands. Odd are in your favor, cars simply don’t break down that much.

As for buying used? Yes, it makes more sense. I don’t do it, but I freely admit it is because I get something intangible and probably silly out of being the only owner of the car. I’m a germ-a-phobe.

Having said that I currently drive a 2001 Honda Accord EX with 45, 000 miles on it. I plan to own it for as long as possible.

I found the Ramsey link very interesting and his system makes a lot of sense except for his continued insistence that you’ll get 12% on mutual funds. I’m not a very savvy investor type, but my understanding is that if you’re going to get good returns on mutual funds (or anything with stocks in the mix) you have to buy and hold – like for 10 years or more. But it sounds like Ramsey is telling folks to use mutual funds as short-term savings accounts for financing cars every 10 to 36 months or so. Am I missing something?

If you’re not wedded to the idea of a *specific* car, look around for which auto maker is offering 0% financing!

I bought my current car ‘new’, but at the very end of the model year (2003 model bought in November 2003), which also happened to be off season for a Mustang. Because it was end of year as well as off season, and because I had 20% to put down (and a very good credit rating), I got 0% financing for 5 years. (OK, so in truth I had 100% – insurance had just paid out a car that was totalled, but I only gave them as much as they needed to get the 0% financing).

Now, I’ve had the money to pay it off a couple of times, but ANY investement (even my ING account) earns me more than 0%! Why pay cash when you can get a better deal?

(Oooh, just be careful about fees and price differentials, those can kill an otherwise good deal)

“Depends on the car. If I remember my numbers correctly: I paid about 15,000 out-the-door for a new Toyota Corolla in 2003; totalled it in 2006 and got over 13K from the insurance company. Hardly 60% loss, don’t you think?”

I said typical new car, which is data from the National Auto Dealers Association, as quoted by Dave Ramsey in his recent live event I attended.

Also, when an insurance company pays on totalling a car, they use “blue book” – or dealer retail, which you will NEVER get as a private party selling or trading a car. Someone buying a car from a private party knows better than to pay retail, because otherwise they’d just go to a dealer.

Do you really think that you’re getting a good deal? These companies are in business to make money, not to save customers money. These “incentives” aren’t incentives for you to get a good deal, they’re incentives to get you to buy more car than you need, and pay too much, usually on a car lease or a loan that looks good on paper but really isn’t in actuality.

How many people do you know say “wow, I’m glad I got that car loan!” Most people who get car loans will become upside down because of depreciation. Pay cash. Buy used. If you HAVE to buy from a dealer, at least do some research and arm yourself with information to negotiate. If the dealer won’t negotiate, they don’t really want your money and you can find one that does.

Great post! I was just thinking about this this morning. I’d love to be able to walk in a pay cash for a car. However, it’s good to know, while I’m saving, that I’ll come out pretty well with a smaller downpayment if my credit’s good. Peace of mind in case the car goes kaput before I’m ready to buy!

“But it sounds like Ramsey is telling folks to use mutual funds as short-term savings accounts for financing cars every 10 to 36 months or so. Am I missing something?”

Yes, you are.

Dave teaches savings as short term, less than 5 years and investing as 5 years or longer. Typically, savings less than 5 years would be money market (or high yield savings) accounts. Investing 5 years or longer would be mutual funds.

The reason for that as he teaches is 97% of any 5 year periods, the stock market has made money, so that is his barometer for investing. It hasn’t always been at 12% for those periods.

Just wanted to update… we are NOT going to repair the Escort. We took it to the dealer where it was originally purchased, they said something different (not the head gasket, but a lifter or something that would be a $400 repair but it MIGHT NOT be that.)

We are now looking at a Ford Explorer (domestic, I know) that is is good shape and we could get it for $3k (what we were thinking of putting into the Escort). I think that my dh could drive it for a year or so, and we could probably sell it for that amount and then decide what we wanted next car down the line. We are willing to put aside a “car payment” into savings each month, so we’ll see what we can do in a year or so. Either a good mini-van for me or likely a used Honda Civic with good gas mileage for dh (who drives 40 miles a day… it will probably cost about $150+ in gas for him to commute in the Ford Explorer…)

I have to say all of this is quite confusing. I come to blogs like this, and read don’t buy new, pay cash, etc. But then my dh’s family, his dad especially, are all in favor of buying new and driving the cars until they die because that’s what they’ve always done. But if I’m reading things correctly, perhaps that was a good idea in the past moreso than now, since cars are built better?

(my FIL tends to not change his opinion easily, I also need to consider that when we consult with him…)

Be careful with 0% financing. The flip side is that if you have to sell your car within a few years of buying it, you’re going to have a hard time. Why would anyone buy your 2008 Ford on a 7% loan when they can buy a 2010 Ford on a 0% loan?

This is the exact flip side of Jared’s comment #36. If you buy from a manufacturer who offers 0% financing, be sure you aren’t going to have to sell the car any time soon.

If the rest of the car is in good shape, or you have already replaced the fuel pump, alternator, clutch, etc., then putting a few thousand into the car makes a lot of sense. And don’t forget a couple of extra issues: insurance and taxes. The older the car, the less both cost.

If you must buy a new (or newer) vehicle, don’t forget to check with your insurance company to see which of the cars you are considering costs the least to insure. There can be a huge difference in costs between different models of the same car, too.

We drive a 2000 Hundai Elantra and 1996 Nissan Sentra. Toyotas and Hondas do run forever, but they are overpriced now. We like Kias and Hundais. They have a good track record, great new warantees (good indication of overall quality) and aren’t “in” yet, so they aren’t overpriced.

One more tip: search the car make, model and year and the words “technical bulletin” to look for typical problems. Also, add “problem” or “trouble” or “complaint” and you can get a great feel for the weaknesses of the car.

@ Marisa (comment #30) : Don’t think much financial analysis is needed. No sense in paying off the loan since you’re not going to keep the truck and it’s depreciating now so sell it ASAP. You’d probably get a better price if you sold it yourself than if you traded it in. No matter what you do, you’ll have to eat the difference between what you can get for it and what you owe on the loan.

While buying used makes better financial sense, buying new works better for me. Many private-sale used cars I’ve looked at have had problems, none of which were fatal but some required sizeable repair costs and frequently the result of under or no maintenance which makes me wonder about what else is failing or about to fail on the car. Buying new means I know its maintenance/repair history from day one. I drive my cars into the ground anyway so amortized costs are low and I’d rather pay for new so I won’t have to deal with having to bring a used car up to speed. I also live in a small town and shopping around for a good used Japanese car is a bit more troublesome; the nearest CarMax is ~100 miles away and the nearest Japanese car repairman is in the next town >30 miles away. So I buy new, switch to full-synthetic lubricants immediately (engines live forever) and perform needed maintenance faithfully. My bought-new, paid-cash, summer 45 mpg @ 65 mph, winter 38 mpg @ 65 mph, 200-kmile, 92 Civic won’t turn heads but I’m debt-free.

Definitely pay cash 100%. Even though my husband got a great deal on his loan before we were married (3% – we earn more than that in our checking account!), we will never take out a car loan again, there is just too much risk.

For the average person, paying cash for a car might *not* make sense. Without destroying my savings account completely, I could only buy a few thousand dollar car… which would likely be unreliable. After fussing with repairs and missing work to handle it all.. meh. I’d rather take out a smallish reasonable, short term loan for a newer or even (gasp) new car.

But that’s just me. If I had piles of cash sitting around, I’d be perfectly comfortable paying cash instaed.

Living in NYC I only have a learners permit (as an ID) and a metro card but as a student of economics, its all about the opportunity cost. Take a look at what % you could expect to make from not paying for the car in full with what normal investments you do make, then compare it to the cost of financing, and go with the the one that makes more sense.

I’m sorry – but you guys are all missing the point. There is an opportunity cost of your capital. If you believe that you can’t get 8% or 10% or whatever you pay on vehicle finance in the US elsewhere, then by all means pay cash. I prefer to leverage myself to the hilt (including on cars), so that I have free cash flow to invest in other opportunities that earn way more than 20% (usually in excess of 50%). Took equity of $50k out of my mortgage a few months ago to invest in commodity stocks, particularly Merafe, a ferrochrome producer. Have made 120% return in a few months – so turned the $50k into $110k. Talk of “no debt” and “pay cash for the car” is poor man’s talk. Only those who know of no investment opportunities that can make in excess of 10-12% should be avoiding debt.

Accept the fact that car’s are horrible horrible investments and you will most likely never see the majority of this money ever again. I don’t think of the car as an investment, just another bill that I want to sink as little into as possible.

Don’t buy new!If you can, buy when you can get great rates and use as little money of your own as you possible. So only by a car that you can afford 100% payment on. Take the money you had for your down payment and invest 100% of it. At ‘average’ 8% growth rates you will have gained 40% return in 5 years. Automatically reinvest the dividends. Anything held over a year is a long term gain when you come to sell the. What does 100% down in cash get you? Next to nothing after 5 years.

When your car is paid for, rejoice and don’t by another until you have to. When I finished paying for my last car I simply took the $450 a month I was paying and had my financial advisor add another $450 to my monthly automatic withdrawal. I drive a lot as part of my job, and because of mileage reimbursements my 2001 300m with 150k makes me about $1100 gross per month.

If your not currently buying a new car, or a car after 2004-5 then your wasting your money. I dont care if your paying 100% on a pre 2004-5 car your paying for a car that is practically guaranteed to cost you up to 40-50% more in the longrun than a newer car due to “true cost” (ie maintenance)

There was a really interesting story about this a few months ago and it basically concluded any car no matter what make (yes that means you too “I drive a Japanese car that never breaks” crowd) , costs almost half its price MORE in maintenance once its 4 years or older.

And if that means you cant pay 100% then dont. Dont listen to these 100% people, they are WRONG. Yes you should try to pay 100% if you can, but if that means you need to get a older car then its just not worth it because you WILL be paying more in the long run. This is a proven fact now.

1. It should be 100% of the total price of the car. Dont borrow money for depreciating assets.
2. Buy used; let some other sucker pay for the first 1/3 depreciation, then acquire the asset.
3. If you cant afford it, dont buy it; you cant borrow your way into a higher standard of living.

I’m with everyone who goes car-free. Think of “not having a car” as “having a part-time job.” If you save a few thousand a year by avoiding car ownership, then that’s what walking/taking the bus/ride sharing is “earning” you. I think it’s worth it! And if you must have one car in your household, you can avoid having a 2nd one and still calculate the benefit this way. Not to mention the mental and physical health payoff from avoiding the car commute.
Gotta go– and walk to work!

Purchasing a new car is sometimes a necessary evil. I completely disagree on having a down payment on a new car. In the current state of the economy, it’s important to have as much liquidity as possible. SAVE YOUR CASH! And don’t buy new. Buy a car that’s a couple of years old and don’t finance for more than 5 years (shoot for 4 years). Financially position yourself so that any time, you could offload the vehicle and end up even or VERY little out of pocket. A car in almost every case, is NOT an investment. Keep your cash.

Lots of people say 100% down, which is what I would do, if I lived in a country like USA where cars are cheap. Above the Weakonomist writes he bought his car for 21,000 USD. The same car costs over 80,000 USD here in Denmark, so 10-20% down and a 7 year low interest (~6,5%) loan is what I’d do ;P Of course, the bigger the down payment, the better.

I bought a ’99 Ford Escort back in ’01 from an action for $2100. I paid another $1200 to have it repaired. My total cost with tax (don’t forget the tax) and repairs was about $3500. I put 95,000 miles on it and sold it for $2500 to my roomate. I never had a problem with the car!! I changed the brakes once ($100 job) and the tires once ($200), but I got to drive the car for 95,000 miles!

After I finished college I bought a 2yr old BMW 330i at trade-in value. I put 25% down and financed the rest with a 0% interest rate! And that was the worst deal I ever made!!! Because I financed the car I was required to get compressive insurance $1400 per year vs. $350 for liability (i have a great driving record). I ended up paying the car in about 18 months and sold it the month I paid it off. I lost a total of $8,000 dollars!!! I included the cost of the sales tax in the loss (no one ever includes sales tax!). I could have bought 2 Fords with that money.

Meanwhile my college roommate is still driving that Ford Escort. His friend offered to buy it off him for $2,000. He only lost about $700 (with tax) and I lost $8,000 (with tax) in the same time period (about 2 yrs). And he put way more miles on his car and had less car problems too.

Moral of the story. Never buy an expensive car. Cars are horrible “investments”. Buy as little car as you can. Simple basic cars are more reliable and have fewer things to go wrong. Ask yourself this question… “How much money can I afford to loose today”… then don’t pay more than that for a car. (This way you can save yourself another grand per year in insurance costs by not paying comprehensive insurance, just get high liability and uninsured motorist, it’s cheap, comprehensive is lousy, the odds are always in the insurance companies favor.) Also, consider sales tax. Sales tax alone can equal the price of a used car.

What people consider a “reasonable” price for a car often surprises me. The thought of spending even $10K on a car, which many people seem to think is a “great deal”, blows my mind. All of mine have been in the $3000 range. When you buy at that price (do your research first) you will save A LOT of money. Not only in the initial outlay, but in insurance.

One tip I have is that if you know someone who “new car prone” and owns a car you would like used, let them know that you would like to be informed because you tend to buy used and you like the car make/model. Many people will feel happy to sell to someone they know as opposed to trading in to a dealer or having to advertise. And they will usually sell their car when it is still in fantastic shape.

All of my cars have been used and CHEAP. They have all worked great, and I’ve rarely been let down by them. (of all of them, my Ford Taurus (88) was the most prone to letting me down) All cars will occasionally let you down and. emotions and fear aside, buying new will NOT protect you from that. My current one has been the best–16 yrs old and still running strong (Honda Accord–and is the one that has NEVER let me down so far. I intend to keep it another 4 years, then we’ll see.)

I budget $600 per year for repairs or maintenance and never spend it all–mostly because very little goes wrong with it, and (minor point) I do all but the very complex stuff myself. If i had to pay a mechanic every time I would probably spend the $600 in full every year.

I will admit, this kind of car ownership is better for the non car-mechanic phobic. The more you know about your car’s mechanical workings, the less you will feel “terrorized” by the thought of breakdowns because the car will not be a mystery to you. This is helpful even for those occasions when you pay for the work to be done, because you can now speak the mechanic’s language.

Good information. I would have probably said the more the better at first too, but you’re right. There are many things to consider. Thanks for providing all of this great info! For those that have bad credit they may want to look at J.D. Byrider since they report payments to the credit agencies.

All of this has been every helpful to me. I have a 96 Ford Escort that has 289,002 km on it. Just recently it ah….blew up lets say. I was really thinking about getting a new car, 2009 Toyota Corrola, but I did some looking around and I’m finding some good deals on cars that aren’t that bad, maybe I’m wrong though :S

How does $4,000 or $6,500 for a 2004 Acura sound? Km is under 130,000 too. I think paying in full would be the best bet in this case.

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